Aggarwal v. Coinbase, Inc.

Background

Coinbase operates an online platform for buying, selling, transferring, and storing cryptocurrency. Users had to create accounts and accept Coinbase’s User Agreement. Manish Aggarwal and Mostafa El Bermawy were Coinbase users and accepted the updated 2022 User Agreement through Coinbase’s application.

Aggarwal alleged that hackers accessed his account in April 2022 and took more than $200,000 in cryptocurrency. He alleged that Coinbase routed his effort to report the theft through an automated complaint process. El Bermawy alleged that hackers took cryptocurrency from his account in July 2022, that Coinbase failed to help him recover it, and that he canceled his account.

The amended complaint asserted 13 federal and California claims, including claims under the Electronic Funds Transfer Act, breach of contract, conversion, negligence, and California consumer-protection laws. The plaintiffs brought the case for themselves and a proposed class of certain current and former Coinbase users who lost access to funds or cryptocurrency.

Coinbase’s Arbitration Agreement

Coinbase moved to compel arbitration. The 2022 User Agreement stated that, with limited exceptions, disputes relating to a user’s access to or use of Coinbase’s services, products, or User Agreement—including disputes that arose before the updated terms took effect—would be resolved through binding arbitration rather than in court. The agreement also contained a class-action and jury-trial waiver.

The agreement included a delegation clause, meaning a provision assigning certain preliminary questions about arbitration to the arbitrator. It stated that the arbitrator had exclusive authority to decide disputes concerning the agreement’s interpretation, enforceability, revocability, scope, or validity. The agreement also incorporated the American Arbitration Association’s rules, which authorize an arbitrator to decide questions about the arbitration agreement and the arbitrability of claims.

Court’s Analysis

The Federal Arbitration Act generally requires enforcement of a valid arbitration agreement covering the dispute. The court first considered the plaintiffs’ argument that the arbitration agreement was illusory because Coinbase could change its terms unilaterally. Applying California contract law, the court found that the modification provision was silent about whether changes applied to accrued or known claims. The implied duty of good faith and fair dealing therefore restricted the provision, and the arbitration agreement was not illusory.

The court then held that the parties had clearly and unmistakably agreed to delegate arbitrability questions to the arbitrator. The court rejected the plaintiffs’ argument that exceptions in the arbitration agreement required the court to decide whether their claims were arbitrable. It concluded that the agreement was not ambiguous and that the arbitrator would decide whether any exception applied.

The court separately examined whether the delegation clause itself was unconscionable. Under California law, unconscionability generally requires both procedural unfairness—problems with how the contract was presented or negotiated—and substantive unfairness in the contract’s terms. The court found a minimal degree of procedural unconscionability because the agreement was presented on a take-it-or-leave-it basis. But the plaintiffs did not show that the delegation clause was substantively unconscionable. The court therefore found the delegation clause enforceable.

Disposition

The court GRANTED Coinbase’s motion to compel arbitration and STAYED all further litigation pending completion of arbitration. It ordered the parties to file a joint status report every 180 days about the arbitration, including when the stay might be lifted, and to notify the court within five court days after arbitration was completed. The opinion did not decide the merits of the plaintiffs’ underlying claims.